How to Draw Objective Trendlines (TD Lines)

A guide to Tom DeMark’s TD Line method — how to draw, validate, and trade trendline breakouts without the guesswork

A way to draw trendlines ‘backwards’ – that actually works..

Source: Currency Trader Magazine (Sept, 2006)

The problem with traditional trendlines

Ask ten traders to draw a trendline on the same chart and you’ll get ten different answers.

Trendlines are among the most widely used tools in technical analysis and, sadly, among the most inconsistently applied. It’s the ‘subjectivity’ of how to draw them that makes some trendline traders ultra-successful, while others never find success with it.

It’s also why back-testing results from trendline strategies are unreliable and trading signals hard to trust.

Tom DeMark, author of The New Science of Technical Analysis (Wiley, 1994) and DeMark on Day Trading Options (McGraw-Hill, 1999), tackled this directly. His solution was the TD Line — a trendline built on strict, repeatable rules anchored to specific price pivots called TD Points.

One of the many handy things about TD lines is that they can be automatically drawn by custom indicators into most charting platforms, including MetaTrader, CTrader and TradingView.

Step 1: Identify your TD points

A TD Point is a pivot high or low surrounded by an equal number of bars on each side that move away from it.

A Level 1 TD Point Low has one higher low on each side of it
A Level 2 TD Point Low has two higher lows on each side.

The higher the level, the more significant the pivot and the more significant any trendline drawn from it.

You may recognise the Level 2 as being a ‘fractal’ as found on the Metatrader 4 platform, as well as on other platforms like Trading View.

TD Point highs work the same way in reverse.

Step 2: Draw the Lines

Always work right to left, starting from the most recent price action. This keeps the line anchored to current market behaviour.

TD Demand Line (support): Connect the two most recent TD Point lows of the same level. A rising line indicates an uptrend.

TD Supply Line (resistance): Connect the two most recent TD Point highs of the same level. A falling line indicates a downtrend.

Step 3: Validate the Breakout (The Four Qualifiers

This is where DeMark’s method goes well beyond a standard trendline break. Price crossing a TD Line is not automatically a trade signal. There are four qualifiers, and only one needs to be true for the breakout to be considered valid.

For an upside break of a TD Supply Line:

Qualifier 1 — Prior Down Close The bar immediately before the breakout must have closed lower than it opened. Buying after two consecutive up days carries higher risk.

Qualifier 2 — Gap Up and Follow Through The breakout bar opens above both the TD Supply Line and the previous bar’s close, then trades at least one tick higher. A strong sign of momentum.

Qualifier 3 — Buying Pressure Check The previous bar’s close plus its buying pressure must remain below the current TD Supply Line. This confirms momentum hasn’t already been exhausted ahead of the break (see the formula below).

Qualifier 4 — Exceptional Open The breakout bar opens above both of the previous two bars’ closes, and the TD Supply Line sits above the prior bar’s high. An unusually powerful gap open.

For downside breaks of a TD Demand Line, the same logic applies in reverse — substitute “up close” for “down close,” “selling pressure” for “buying pressure,” and so on.

The buying & selling pressure formula

Qualifier 3 asks whether momentum has already been spent before the line was broken. Here’s how to calculate it:

Buying Pressure (used for upside breaks):

True Low = the lower of (bar’s low) or (previous bar’s close)
Buying Pressure = bar’s close − True Low
BP Value = bar’s close + Buying Pressure
If the BP Value is already above the TD Supply Line → buying momentum is exhausted → skip the trade
If the BP Value is below the line → momentum still has room to run → watch for the break

Selling Pressure (used for downside breaks):

True High = the higher of (bar’s high) or (previous bar’s close)
Selling Pressure = True High − bar’s close
SP Value = bar’s close − Selling Pressure
If the SP Value is below the TD Demand Line → selling momentum is exhausted → skip the trade

If none of the qualifiers are met then fade it

This is one of DeMark’s most distinctive ideas: when no qualifier is satisfied, don’t trade the breakout — trade against it. A trendline break with no momentum validation is more likely to snap back than follow through. Most textbooks ignore this scenario entirely, but DeMark treats it as a legitimate short-term trade in the opposite direction.

Step 4: Calculate your price objective

Once a qualified breakout occurs, a mechanical price target can be calculated:

After an upside break of a TD Supply Line: Distance = TD Supply Line value − lowest low below the line Target = Breakout price + Distance

After a downside break of a TD Demand Line: Distance = highest high above the line − TD Demand Line value Target = Breakdown price − Distance

Step 5: Know when to exit

A valid breakout should follow through immediately. If it doesn’t, get out. DeMark provides three exit triggers for each direction:

Exit a long trade (TD Supply Line breakout) if:

The bar after the breakout bar opens below the breakout price level
That bar opens below the breakout bar’s close and then closes below the breakout price
That bar fails to exceed the high of the breakout bar

Exit a short trade (TD Demand Line breakdown) if:

The bar after the breakout bar opens above the breakout price level
That bar opens above the breakout bar’s close and then closes above the breakout price
That bar fails to trade below the low of the breakout bar

Forex and the ‘Mouteki’ connection

NOTE: Because cash forex trades around the clock, a bar’s open is often identical (or nearly so) to the previous close. This can make Qualifiers 2–4 tricky to apply cleanly. Currency Trader Magazine recommended using currency futures prices when this becomes an issue.

The Mouteki method, one of the most popular trading system threads on Forex Factory, uses TD Points and trendline breakouts as a core part of its framework. The method is essentially the same without the qualifiers.

As it happens, Mouteki got banned from ForexFactory, possibly for presenting this method as his own rather than something likely taken from DeMark’s work.

Sources: Tom DeMark — The New Science of Technical Analysis (Wiley, 1994) and DeMark on Day Trading Options (McGraw-Hill, 1999) · Currency Trader Magazine, “Drawing Objective Trendlines: TD Lines,” September 2006 · Mouteki / Forex Factory